Flexible lending in construction finance

The Australian construction industry has been facing numerous challenges over the past few years. Increasing borrowing and material costs, supply chain disruptions, labour shortages, project delays, builder collapses, and the end of COVID-19 induced property price surges have all made it difficult to maintain momentum and enthusiasm in the sector.

Despite these challenges, the construction industry remains a vital component of the Australian economy, and there are still opportunities for investors to achieve attractive returns while supporting the development of much-needed housing and infrastructure.

One company that has been at the forefront of providing funding for the construction industry is Funding. In the last 12 months alone, Funding has settled over $60 million in construction and development facilities, demonstrating their commitment to supporting the industry.

“Despite the headwinds facing the construction sector, we have observed an increasing number of creditworthy good deals in the marketplace,” says Senior Credit Risk Manager, Kye Donnelly. “We remain confident in the long-term outlook for the construction industry, and we are committed to providing financing solutions that help developers and builders succeed.”

While the construction industry faces numerous challenges, Funding has taken steps to mitigate risks associated with investing in this sector. For example, they have initiated an ongoing watch list for registered builders they are exposed to and monitor it daily, ensuring they are backed by sufficient assets on their balance sheet and have adequate cash flow to meet each drawdown.

Furthermore, Funding structures its product in such a way that there is no requirement for any of their developers to have pre-sales for their projects. This has allowed them to partake in the significant upside property values have experienced in the last few years. This is increasingly important for developers as construction costs continue to rise, allowing several of these projects to remain feasible.

Despite the recent decline in building approvals, the government has forecasted that the population will grow by 900,000 as a projected 650,000 migrants will move to Australia by 2025¹. This will necessitate a significant increase in the number of homes available, providing opportunities for investors to capitalise on the demand for new housing.

To meet this growing demand, the government should consider providing subsidies for development projects. These subsidies can make it more attractive for developers to enter the market and build enough homes to satisfy the demand for housing. Such initiatives will not only provide a boost to the construction industry but also help address the housing affordability crisis in many parts of the country.

In conclusion, while the construction industry faces numerous challenges, it remains a vital component of the Australian economy, and there are still opportunities for investors to achieve attractive returns while supporting the development of much-needed housing and infrastructure. Funding has demonstrated its commitment to supporting the industry by providing financing solutions that help developers and builders succeed, and with the government’s support, the long-term outlook for the construction industry remains positive.

Let’s break it down to our most frequently asked questions…

What will be the expected interest rates and fees?

The obligation free conditional approval will outline all rates and fees, and is tailored to your clients’ specific loan needs.

What is the LVR on construction loans?

The loan to value or LVR is the maximum lend secured over the property. Our typical LVR is 65% or lower of the property value. On some occasions, 70% may be considered depending on the location and type of security property.

What terms do you offer?

Loan terms are typically between 1 and 36 months.

What properties do you accept as security?

Residential, commercial and vacant land across Australia.

What type of borrowers can apply?

Borrowers can be individuals, companies or trusts borrowing for any purpose including personal or business. Borrowers must have sound real estate security, the ability to meet their repayments and a strong and confident repayment strategy to exit the loan at the end of the term. 

¹ https://www.bankingday.com/court-calls-on-asic-to-close-loophole

Have more questions? Feel free to send them through to info@funding.com.au.

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